In good financial times and bad, property is seen by most financial advisers as a safe investment. In difficult times such as the world is experiencing at present, your home may lose value for a time. In the long term, however, bricks and mortar have traditionally held their value.
Before the Covid-19 lockdown, banks were granting more home loans as well as asking for lower deposits from applicants. Inflation is expected to be relatively low in the near term, and the South African Reserve Bank (SARB) indicated at its last meeting (in March) that there is a strong possibility of one more 25 basis point rate cut later this year.
Rhys Dyer, chief executive of ooba, says: “Although there will be some challenging times ahead for consumers, we don’t believe the outlook for property is all doom and gloom.
“The prime rate of interest is at the lowest level it has been since 1973, with the prospect of potential further rate cuts. For first time home buyers the cost of renting versus buying is now swinging very much in favour of buying, especially for properties priced below R1 million, where no transfer duty is applicable.
“There are likely to be attractive deals in the market as sellers who have been holding on for some time to sell their properties are forced to reduce prices, which should bolster demand.”
Fewer transactions
During the national lockdown, real estate transactions have come to a halt, world wide. Data from China, South Korea and Italy reflect a drastic drop in real estate transactions in those countries, and South Africa is no different.
Stock market woes good for property
The stock market crash will doubtless have far-reaching effects for investors. When it comes to the property market, however, some of those effects could actually be positive. Brick and mortar assests are often the go to option for investors. The net yield of properties has increased, with the interest rates as low as they are at present.
Opportunities for first-time buyers
Soon life will return to normality, all time low interest rates, eager lenders, and the expected flood of properties to hit the market will make conditions for buyers very favourable. First-time buyers, will find their rental payments could soon be very similar to their potential bond repayments. Buyers should be careful not to overreach, but for those that can afford to buy now, this is an excellent time to snap up bargain properties at record prices. It should also be in the back of your mind that interest rates will climb again as the economy recovers, and you don’t want to be at the edge of your affordability when that happens.
Lower income earners
As interest rates tumble and property prices come under pressure in the months following the immediate Covid-19 health crisis, lower-income families could be presented with their best opportunity in almost a decade to buy a property.
The household income required to qualify for a R500 000 home loan has already dropped from about R19 300 a month to around R16 400
Repayments on home loans have also become more affordable, falling from R4 825 to R4 100 a month on a R500 000 home loan taken over 20 years.
Cautious lenders
Banks can be expected to be cautious about approving new home loans in the coming months and they will be looking for applicants with good credit records as well as steady incomes, however, banks will be keen on lending. What is happening in the market at present is very similar to what happened after the 2008/09 financial crash, which proved to be an exceptional opportunity for low-income buyers to enter the formal property market and start building up personal wealth.
Property planning
The lower interest rates favour mortgage applicants at present, so if you are in a position to buy a property this is an ideal time to take the plunge. For now, though, there is little for buyers and sellers to do but wait for the Covid-19 lockdown to come to an end.
Courtesy of Private Property - Private Property Reporter • May 25, 2020
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